DETERMINANTS OF CREDIT DEFAULT OF MICRO FINANCE INSTITUTIONS: CASE OF SHASHEMENE TOWN, ETHIOPIA

The existing microfinance institutions have tried to bridge the gap of credit accessibility to micro-entrepreneurs but despite this the entrepreneurs or micro-enterprises have been defaulting on their loans. Thus, this study was principally carried out to analyze the factors influencing loan repayment in micro-finance institutions. Descriptive survey was employed with a target population of 30 Loan Officers and 252 registered MFI clients. Stratified proportionate sampling and simple random sampling were employed. Data was collected by use of questionnaires and interviews and analyzed using both descriptive and inferential statistics. Based on Pearson chi-square, the study found that age of respondents, marital status of respondents, education level of respondents and numbers of dependents were individual characteristics that influencing loan repayment performance. In relation to business characteristics those influencing loan repayments were: business type, length or time of operation and number of group members are those variables that significantly predicting loan repayment default. Whereas the lenders characteristics amount of loan was significantly predicting loan default. Therefore, the government and other stakeholders in the sector should ensure that prospective financial borrowers have access to formal education; take in consideration business experience, business type, amount of loan to offer, number of dependents and training on record keeping. The MFI?s should adjust the time taken to repay a loan and develop models that are more effective in evaluating credit worthiness of their clients.